YOUR MORTGAGE : If Bill Passes, Postmarks Will Rule

WASHINGTON — Millions of American homeowners would get a new standard for determining whether their monthly mortgage payment was made on time--or late--under a bill that is attracting strong bipartisan support on Capitol Hill.

Known as the Postmark Prompt Payment Act of 1995 (H.R. 1963), the legislation would establish a simple test for timeliness in payments to creditors:

You're on time if the postmark on the envelope containing your check is no later than the due date for your loan payment. If the postmark is after your due date, you're late. The date the Postal Service actually delivers your check to the lender or loan servicer--now the crucial determinant--would become irrelevant to you as a borrower.

For example, say you mailed your mortgage check three days in advance of the monthly due date, but your loan servicer 2,000 miles away doesn't receive it for another two weeks. Currently you could be whacked with a late fee, but not under the proposed legislation. If your due date was Nov. 1, on the other hand, and your postmark was Nov. 5, you'd be legally late. Reacting to the new postmark legislation, your lender could eliminate its current grace period for late payments and hit you with penalties you don't face now.

The new bill was authored by the chairman of the House subcommittee that oversees the Postal Service--Rep. John M. McHugh (R-N.Y.)--and has attracted support from 35 bipartisan co-sponsors, including the chairman of the Government Reform and Oversight Committee. Either alone or as an amendment to a larger bill, it is considered to have a shot at House floor action this session.

Syndicated radio talk show host Bruce Williams, who first proposed the concept to McHugh after hearing extensive complaints about lenders' late fee practices from listeners, calls the bill "a grass- roots initiative . . . that had its genesis where so much good legislation does--from the public at large," rather than high-paid lobbyists for special interest groups.

Although the bill would cover all forms of credit transactions--including rent checks sent to landlords--one of its biggest effects would be on the home mortgage arena. Under current practice, many lenders or mortgage servicing firms establish a formal due date for receipt of payments--often the first of the month--but allow a grace period of five to 14 days to accommodate postal delays and minor lapses by borrowers.

Major servicers report that the overwhelming majority of homeowners send in their mortgage payments on time or somewhere early in the grace period. A smaller percentage of consumers play a riskier game, servicers say, by waiting until the very end of the grace period and then mailing in the check.

Tom Boone, the head of loan servicing for the nation's largest independent mortgage firm, Countrywide Funding of Pasadena, says that about 3% of the company's 1.15 million mortgages are 30 days delinquent. Boone would not disclose the percentage of borrowers whose checks arrive after the 14-day grace period but confirmed that it was higher than 3%.

Assuming for the sake of discussion that 5% of Countrywide's mortgage borrowers are delinquent at the end of their grace periods, about 57,500 customers would be subject to imposition of late fees per month. Countrywide's late fees amount to 4% to 5% of the borrower's monthly installment, according to Boone--a $60 to $75 extra charge on a $1,500 payment.

Asked what a postmark-based late-fee system as proposed in Congress would mean to the mortgage business, Boone was emphatic: "It's going to increase the cost of doing business, and that cost would have to be passed on to the consumer."

Not only would loan servicers have to design and purchase new automated processing equipment that would read and retain postmark dates for each account, according to Boone, but they would have to scrap existing automation at huge cost and retrain personnel.

The American Bankers Assn. said that if the extra cost of processing payments added a hypothetical 20 cents per payment, the additional expense would be vast, given the estimated 400 million to 600 million active credit card, home equity line, home mortgage and other credit payments processed by American lenders each month.

One mortgage lending executive, who asked not to be identified, suggested that his firm might abandon grace periods for home loans under a postmark-based system. "Fair has got to be fair for both sides," he said. "You can't pay by postmark [and be] eight days late and then expect us to look the other way when we get the payment on the 20th."

McHugh's response to industry concerns: Let's talk about the costs, the new technology needed and work out a solution. "I am confident that these companies share my concerns regarding late fees, penalties and adverse credit ratings being assessed against timely bill-payers."